Members of the Welsh Senedd (Welsh Parliament) debated the Draft Welsh Budget 2021-22 on Tuesday (Feb 9). It was a wide-ranging debate, focused on spending plans and the budget process, with little discussion of tax changes. Members of the Senedd voted on two opposition amendments, neither of which were successful.
The Draft Budget – a recap
The Draft Budget, published by Welsh Minister for Finance Rebecca Evans on 21 December, confirmed the Welsh Government’s commitment not to raise Welsh Rates of Income Tax during this Senedd, but changes were announced to Land Transaction Tax (the tax which replaced Stamp Duty Land Tax in Wales from April 2018), with effect from 22 December.
The higher residential rates tax bands of Land Transaction Tax went up by one percentage point. Buyers of residential properties liable to pay the higher residential rates will now pay an additional four per cent (up from three per cent) of the cost of the property over and above the main residential rates. It will see second home-owners paying a four per cent levy when they buy properties up to £180,000, rising to 16 per cent for homes worth at least £1.6 million. The starting threshold on Land Transaction Tax for non-residential property purchases was lifted by 50 per cent. Businesses will now, in the main, pay no tax on purchases costing up to £225,000, the minister said. The Welsh Government will not be extending the current Land Transaction Tax temporary tax reduction introduced in July for tax paid on, broadly, residential properties to be used as a main residence beyond the planned end date of 31st March 2021.
From 1 April 2021, the Landfill Disposal Tax rates will rise in line with inflation.
Most of the funding for the Welsh Government spending comes from the UK Government in the form of a block grant, calculated in accordance with the Barnett formula.
Spending commitments in the Budget included:
- £5.4 million boost for personal learning accounts
- £176 million provided to local authorities, £8.3 million for curriculum reform, and £21.7 million for HE and FE demographic pressures.
- £40 million for the housing support grant
- £37 million of capital funding to support the building of affordable and sustainable homes
- £3 million to support our high streets and town and city centres, and £5 million to support our wider regeneration activities through our town centre loans programme
- An additional £5 million for biodiversity and the national forest, and extra £26.6 million for the circular economy to improve recycling in Wales and address social inequities.
- £20 million for active travel projects, and a total of £275 million in rail and metro
- £3 million to provide a foundational economy fund
- £420 million for health and social services to support the NHS's growth and post-pandemic recovery.
Opening the plenary debate, Finance Minister Rebecca Evans set out the challenges Wales faces, such as a shrinking of the its economy by up to six per cent because of Brexit. Given the COVID-19 pandemic, Evans said she agrees with the OECD and the IMF that it is not appropriate to tighten fiscal policy in the short term; she complained that the UK Government’s approach to rebuilding public finances remains unclear. While the Committee on Climate Change has noted significant costs of combating climate change will fall to the private sector, it is inevitable that there will be public spending implications, she acknowledged.
Evans complained about the UK Government's ‘chaotic’ approach to its budget timetable and the ‘significant and unreasonable’ impacts that this has had on her own budget preparations. She called on the UK Government to allow the Welsh Government ‘necessary flexibilities’ to deal with this; this includes on post-EU farm funding, the shared prosperity fund, flooding and coal-tip remediation.
The Draft Budget states that the funding provided by the UK Government for Welsh farmers is £173 million less than it would have been if existing arrangements had continued, while the UK Shared Prosperity Fund (the post-Brexit replacement for EU regional development spending) is reportedly worth £220 million for the whole of the UK in 2021-22 – a substantial reduction from the £375 million previously spent by the EU in Wales alone through the European Structural and Investment Funds.
She said: “Confronted with the most challenging circumstances we have faced since devolution, I am proud that this Draft Budget not only provides a solid foundation for the next administration, but protects, builds, and changes to deliver a more prosperous, more equal and greener Wales.”
Speaking on behalf of the Finance Committee, Siân Gwenllian agreed with Evans that a lack of forward funding figures, with only a one-year revenue funding settlement, has made budget-setting work even more challenging. The UK Government’s Budget is set for 3 March 2021, meaning that the Welsh Government’s final budget will not be able to reflect its content, ‘so we can be sure of significant changes to allocations during the year’, she complained.
The Finance Committee has been concerned about the mechanism and transparency used by the UK Government to make funding decisions. This led Gwenllian to recommend that the Welsh Government continue to seek commitments from the UK Government that UK fiscal events will normally take place by a specified date and that multi-year funding settlements will be reinstated in time for next year’s budget process. She welcomed the approach taken this year, where changes to Welsh taxes have been made as part of the Draft Budget, given that tax changes are linked to spending commitments.
On the budget announcements, Gwenllian welcomed the uplift for health but asked for further information about how the additional £385 million funding for core NHS services will be used, including a breakdown to show how much has been set aside for the pay award for staff and other services. She is concerned to hear that the increased funding in the local government settlement will not cover all cost pressures, such as those on social care, childcare and education. The Welsh Government should clarify how funding for local government and education supports the current ways of learning, she said. The Welsh Government should look at existing regeneration programmes still represent best value and considers the need to be more focused on supporting growth and investment in skills and employability, she added.
Conservative Shadow Finance Minister Mark Isherwood spoke for his amendment which says the Welsh Government's Draft Budget 2021-22 does not enable Wales to ‘build back better’ and recover from the COVID-19 pandemic.
Isherwood attacked the Labour-run Welsh Government. He said in the year before the pandemic, NHS waiting times doubled in Wales, and Wales has retained the highest poverty rates and lowest pay of all the UK nations throughout devolution since 1999. He mentioned this month's Wales fiscal analysis by Cardiff University which identified £655 million of COVID-19 funding, which the Welsh Government is yet to commit, rising to £760 million, including the pre-existing unallocated spending in its final budget plans. North Wales councils are again receiving a lower average increase than south Wales, and the Welsh Government is ‘once again refusing a funding floor to protect councils’, he charged. The third sector and charities in Wales have experienced a dramatic decline in income supporting vital services, he added.
Isherwood noted that the Federation of Small Businesses Wales had identified uncertainty about where funding support for business would come from, and that they had described the roll-out of business support packages as 'patchy' and expressed concern that this Draft Budget does not provide enough support for self-employed people. Isherwood was keen to say the UK Government has guaranteed the current annual budget to farmers in every year of this UK Parliament.
Plaid Cymru’s Shadow Cabinet Secretary for Health and Finance Rhun ap Iorwerth moved an amendment on behalf of Plaid Cymru. It calls on the Welsh Government to ensure that the unallocated fiscal resource in the Draft 2021-22 budget is used to expand free school meal eligibility criteria to include all children in families in receipt of universal credit or equivalent benefit and any child in a family with no recourse to public funds. Proposing the amendment, ap Iorwerth cited the Government's own action group on child poverty which emphasises that expanding free school meals would be one of the most effective actions that the Government could take to mitigate the impact of child poverty in Wales.
Ap Iorwerth explained why Plaid Cymru will not support this Welsh Budget, saying the additional funding has already been subsumed before arriving at the councils. There is a strong case for freezing council tax because it is the poorest who pay the greatest proportion of their income on it, he suggested.
Labour’s Mike Hedges partially supported Plaid Cymru’s amendment, saying the Welsh Government should commit to looking at how much it's going to cost and where the money is going to come from.
Conservative Russell George said the Welsh Government often states and repeats that they offer the best business support package across the UK. But members of the Senedd are still waiting to get some comparison information in terms of Welsh Government support versus support in other parts of the UK.
Plaid Cymru’s Dai Lloyd is concerned about the ongoing fragility of social care services, saying there is a ‘grave’ need to reform the system and to develop sustainable and long-term funding settlements for social care.
Labour’s Alun Davies also backed Plaid Cymru’s amendment, saying: “The Government's on the wrong side of this argument.”
UKIP’s Neil Hamilton said the Welsh budget is too small to pay for public services in Wales and the Welsh Government lacks the tax and policy levers in so many areas that are required to make a real difference to the size of the economy. Hamilton said: “It's either that we have to raise more taxes or we have to grow the economy, and the Welsh Government finds it very, very difficult to do either.” On environmental policy, green policy on renewable energy, etc, the effect of Welsh Government policy is that it is using its powers to damage businesses and further impoverish the poor whilst pouring cash into the pockets of millionaire developers who are invariably based in England, he claimed. The Barnett formula remains as it was in 1978 and Wales is institutionally disadvantaged by that, he added.
Labour’s Jenny Rathbone said we simply cannot afford to see the leakage from public expenditure going to companies outside Wales on the scale that currently happens. On the Plaid Cymru amendment, she said it is a complicated issue because in the last financial year, 20 per cent of our children entitled to free school meals did not take up that entitlement. One of the most important things that this budget is committing us to is the building of more affordable, fully insulated homes, using the latest timber-framed, pre-constructed technology, she said. That is one of the ways in which people who cannot afford to be living in badly maintained private accommodation are going to be helped out of poverty.
Both amendments were unsuccessful and the Draft Budget was passed. The Final Budget will be published on 2 March 2021, with the final budget debate on 9 March 2021.
The debate (item 10) can be read here.
Ahead of the debate the Senedd Finance Committee published a report, Scrutiny of the Welsh Government’s Draft Budget 2021-22.
In the Foreword to the report, committee chair Llyr Gruffydd said that this was the third consecutive year in which the Draft Budget had been produced and scrutinised under exceptional circumstances. “This year the pandemic has led to delayed UK fiscal events, which resulted in delays to publication of the Welsh Government’s Draft Budget. In turn this has reduced our time for scrutiny, which is particularly concerning given that COVID-19 will have an impact on public spending for years to come.”
The report’s recommendations include:
- That the Welsh Government outlines the implications of, and its response to, the UK Budget as soon as possible, to enable the Committee to reflect on potential changes to the Welsh Government’s Budget 2021-22
- That the Welsh Government continues to seek commitments from the UK Government that UK fiscal events will normally take place by a specified date to ensure devolved administrations have sufficient time to carry out meaningful budget setting and scrutiny
- That the Welsh Government continues to seek commitments from the UK Government for multi-year funding settlements to be reinstated in time for next year’s budget process
- That the Welsh Government continues to press the UK Government for fair funding in relation to recent decisions that are causing uncertainty or impacting on funding available to Wales such as HS2, shared prosperity fund, pillar funding, legacy coal tips and flood damage
- That the Welsh Government works to simplify the process for accessing business support packages and offers help and better signposting to smaller business